Citigroup says Destiny USA has no tenants; work comes to halt

Courtesy of Destiny USAAn aerial view of Carousel Center from May 17. Work has come to a halt on the mall expansion while Destiny USA argues with Citibank over the nearly $70 million remaining in its loan.

More than two years after construction began on Syracuse's biggest building project in 20 years, Destiny USA has no tenants signed up, the project's construction lender said Friday.

Citigroup said the lack of even a single tenant lease, as well as significant cost overruns and schedule delays at Destiny USA, have made it impossible for the project to be completed unless developer Robert Congel puts up more of his own money or finds alternate financing.

Citigroup said it has lent more than $85 million to Destiny USA and has refused to advance the remaining portion of its $155 million loan to the project because Congel has not met its demand that he provide additional funds to cover cost overruns and finish construction.

"Due to considerable cost overruns, schedule delays, and inability to secure a single lease, despite Citi's efforts, there is no possibility the project will be completed unless the borrower meets its obligation to make additional funds available," Citigroup said.

Destiny said last month -- and again Friday -- that it has tenants lined up for the addition, which it planned to open in stages. It declined Friday to name those tenants or say how many it has attracted.

Destiny said it was in "full compliance" with the terms of its loan with Citigroup.

Citigroup cut off the money flow to Destiny on May 20. Friday, construction came to a virtual halt. Destiny said there were only 40 construction workers still on the job early in the day -- there appeared to be far fewer by late afternoon -- as more than 13 contractors, including 10 prime contractors, stopped work and left the site because they have not been paid.

On May 31, there were 331 workers on the job, according to Destiny.

Destiny said the bank's refusal to advance money on its loan has left it with $25 million in unpaid bills.

Though the money stopped flowing last month, Congel's dispute with the bank goes back to last summer. That's when Citigroup told Destiny for the first time that the developer needed to put up $20 million to cover cost overruns.

The bank later lowered that amount to $15.2 million, according to a lawsuit Destiny filed against Citigroup this week seeking to force the bank to advance the remaining $68.4 million on its construction loan.

Destiny said in the lawsuit that Citigroup's calculations of the cost of completing the project are incorrect. It said the bank improperly included the cost of building out each tenant's space. Under the terms of its loan agreement, those costs are not supposed to be included in the bank's estimates for the cost of completing the project, it said.

Citigroup said its cost estimates were correctly calculated under the loan agreement.

"Tenant improvements have been a line item in the budget since the project's inception," the bank said.

Destiny initially estimated it would complete construction last summer. It now says the project is 90 percent complete.

The bank's concerns go beyond the construction delays and cost overruns, however. Sources said the lender, as early as last summer, worried about the lack of any tenants for the project, a three-story, 1.3-million-square-foot addition to Congel's Carousel Center shopping mall on the south shore of Onondaga Lake.

Among Citigroup's concerns were the fact that Congel was taking an unusual approach to leasing the big addition, sources said. Congel planned to lease a third of the addition's 900,000 square feet of leasable space to Italian boutiques and restaurants.

Later, he proposed making Destiny a consumer research and development center, collecting data on consumer shopping habits and making that information available to retailers who leased space in the project, the sources said. The idea was that the service would make the project more attractive to retailers.

Citigroup continued to lend to the project through the fall, winter and spring despite becoming increasingly worried that neither leasing approach was succeeding in attracting tenants, the sources said. Adding to its worries was a national recession that has caused retailers to slash expansion plans all over the country, the sources said.

Destiny alleged in its lawsuit that the real reason Citigroup is refusing to advance money on the loan is the bank's own money troubles. The bank has borrowed $45 billion from the federal Treasury to stay afloat after suffering massive losses on risky loans, particularly in the housing market.

"Citigroup has determined that honoring its obligations, such as those to fund Destiny USA, must give way to internal pressures -- (to) preserve its own liquidity and its very viability as an institution," the company said in the lawsuit.

Destiny said it has no way to replace the Citigroup funding in today's financial market.

In a statement late Friday, Destiny called Citigroup's statement "disappointing and inconsistent with the facts on many levels."

"Instead of litigating this matter in the press, Destiny USA believes that the best way to keep the project moving forward is for both parties to negotiate in earnest," Destiny said.

The city of Syracuse and Onondaga County have given the mall expansion a 30-year property tax exemption in hopes that it will create jobs and generate sales tax revenues.

The dispute between Congel and Citigroup has drawn the attention of local and federal politicians. On Friday, U.S. Rep. Daniel Maffei, D-DeWitt, jumped in, telling Citigroup Chief Executive Officer Vikram Pandit in a letter that the dispute threatens to undermine a project he called "one of our region's biggest economic drivers."